THERE are many reasons, apart from cost savings, that people set up self-managed super funds (SMSF). Being in control of your financial destiny, not having to deal with a slow-moving bureaucracy and having direct investments in a super fund are three other big reasons.
QIs it possible to set up a SMSF so I can reduce the management costs I now pay, and shift the money I have in my present super fund, even after retirement? If so, what is involved?
A An SMSF can be set up at any time and funds held in another super fund rolled into the SMSF, no matter what the age or retirement status of the member. The main restriction applies to a member's age and their ability to make further concessional or non-concessional contributions. Once a person turns 65, they must pass the work test to make further contributions.
To set up your SMSF, you will either need to have another person join the fund as a member and trustee, or you will need to incorporate a company that will be the trustee of the fund, with you acting as the sole director shareholder. You will then need to have a superannuation trust deed done.
Costs for drawing up a trust deed can vary widely, from as little as $110 up to more than $1000, depending on who you use. It pays to shop around and make sure you are not paying too much.
After the deed has been finalised and signed, you must then apply for an ABN and tax file number for the fund. Then the SMSF's bank account must be set up to receive the funds from your existing super fund as a rollover and any new contributions.
Q I intend to set up my sole-trustee SMSF and buy a residential property as part of my diversified asset allocation within the fund. This property will be paid for in full. As a fund in pension phase pays no tax, is it still entitled to the normal depreciation and other tax deductions associated with the costs of owning a rental property? Also, once in pension phase, the super fund's assets are valued each year. Valuing shares, bonds and cash on a specific date is relatively simple. But how do I value a rental property for this purpose?
A You are right that a super fund in pension phase pays no tax. But this does not alter how income and expenses are treated for tax purposes. The super fund can still decrease the rent it receives by all allowable deductions such as depreciation, agent's fees, rates etc. Once the net taxable rent has been calculated no tax is paid by the super fund if it is in pension phase.
The investments in a SMSF that can be easily valued each year, such as shares and managed investments, should be shown at their market value on an annual basis. For investments such as property and art works the Tax Office allows the fund's trustees to value these assets once every three years.
Trustees can obtain valuations for investments such as property from qualified valuers, suitably experienced real estate agents, or calculate the value themselves.
Questions can be emailed to super@taxbiz.com.au
Frequently Asked Questions about this Article…
Can I set up an SMSF after retirement and roll over my existing super into it?
Yes. You can set up a self-managed super fund (SMSF) at any time and roll funds from another super fund into the SMSF regardless of your age or retirement status. The main limitation is your ability to make further concessional or non‑concessional contributions once you reach age 65, when the work test applies.
What are the main steps to set up an SMSF (self-managed super fund)?
To establish an SMSF you need to have a trustee structure in place (either another person joins as member and trustee or you incorporate a company to act as trustee), have a superannuation trust deed drawn up and signed, apply for an ABN and tax file number for the fund, and set up a bank account for the SMSF to receive rollovers and new contributions.
How much does it cost to draw up an SMSF trust deed?
Costs for preparing a superannuation trust deed vary widely depending on who you use. The article cites a range from about $110 up to more than $1,000, so it pays to shop around to avoid paying more than necessary.
Can a sole‑trustee SMSF buy a residential property and include it in the fund's investments?
Yes. A sole‑trustee SMSF can purchase residential property as part of a diversified asset allocation, including properties that are paid for in full. Just be aware of the SMSF’s ongoing reporting and valuation requirements for property assets.
If my SMSF is in pension phase and pays no tax, can it still claim deductions like depreciation on a rental property?
Yes. Even when an SMSF is in pension phase and the fund pays no tax, income and expenses are still treated the same for tax purposes. The fund can reduce rent by allowable deductions such as depreciation, agent fees and rates. Once the net taxable rent is calculated, no tax is payable by the fund if it is in pension phase.
How often do I need to value property held in my SMSF for annual reporting?
Assets that are easily valued (shares, managed investments, cash) should be shown at market value annually. For assets such as property and artworks, the Tax Office allows trustees to value these once every three years. Trustees can obtain valuations from qualified valuers, experienced real estate agents, or calculate the value themselves.
What trustee structures are available when setting up an SMSF?
You can either have at least one other person join the fund as a member and trustee, or you can incorporate a company that acts as the trustee with you as the sole director and shareholder. Either structure must be reflected in the fund’s trust deed.
What do I need to do before rolling over super to my new SMSF bank account?
Before rolling over, ensure the SMSF trust deed is signed and finalised, apply for an ABN and tax file number for the fund, and set up the SMSF bank account. Once those steps are complete you can arrange for the rollover from your existing super fund into the SMSF and start making any new contributions allowed.
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